The recent chaos in emerging markets has driven investors into U.S. Treasuries. The flight to safety has helped push down interest rates, with the yield on the 10-year bond now 2.6 percent. Although that is higher than the 1.5 percent of last summer, it is considerably lower than the 3 percent the 10 year yielded last month.

This decrease in rates creates another opportunity — perhaps the last one for this rate cycle — for Uncle Sam to borrow. A broad assortment of long-term projects requires attention and low rates make it the ideal time to renovate America’s decaying infrastructure.

Indeed, this is quite significant, especially when you consider how we fund the U.S. budget deficit. According to a recent Treasury report, the average maturity of U.S. debt is 66.7 months (see Fiscal Year 2013 Q4 Report).

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

13 Responses to “Why Dosn’t U.S. Take Advantage of Low Rates?”

It seems to me that the decision to stop issuing the 30-year was driven by ideology and continues today due to inertia.

Also, I’m not well-versed in economics, but wouldn’t the interest rate on long-term bonds most likely go up if the government started issuing lots of them to replace shorter term bonds? And isn’t a steep rate slope usually viewed as a good thing for the economy, or is the government so focused on trying to resuscitate the construction industry that keeping mortgage rates as low as possible outweighs all other considerations?

For the Stafford Loans Income Based repayment can be a big help (be careful lenders will try to steer them towards Income Contingent repayment which isn’t nearly such a good deal). Agree that we’d be better off if there was more emphasis on building the workforce (and citizens) for the next 40 years.

As the deficit falls so will the economy barring increases in wages or a reduction of trade deficit (fat chance!). That’s straight from John Maynard Keynes whom the rest of the world follows, except for us here in Wingnutistan who apparently think a government or a national economy should be run like a Mom and Pop grocery store.

I think the comments on Bloomberg.com clearly show why the US is not taking advantage of the low interest rates. The “government spending has only negative value (unless spent on wars and military)” trolls have been out in full force for several years.

So, you want Uncle Sam to (1) borrow money at 4-5% for 30-50 years, (2) spend it on infrastructure, and (3) pay it off with higher taxes (3c/kwH on the electrical grid and 10c/gal on gasoline)?

I gotta admit, Uncle Sam is really good at steps 1 and 3. But Step 2? That hasn’t been such a shining light lately, at least at the national level. It seems we’d rather have trains derailing and destroying cities in Canada rather than build ourselves a pipeline. And California, where I live, isn’t much better – the rail project cost escalations are unbelievable. The 24-year Bay Bridge post-earthquake retrofit wasn’t exactly a beacon of efficiency either. You do remember the 1989 Bay Area quake right? They only just finished redoing the bridge that failed then.

Didn’t we just borrow something like $10,000,000,000,000 (yes, that’s how big $10 trillion is) over the past few administrations? Did we get any intelligent infrastructure development out of that? Why would the next $1,000,000,000,000 be any different?

The public does not trust Congress to implement infrastructure spending intelligently. I’m not a Republican, but I have to admit that “We’ve got to pass this bill to find out what’s in it” has to be among the least responsible statements uttered by a national leader in the history of the world. Last time I looked in the direction of D.C., all the major laws are Too Big To Read, written by the lobbyists and not for the national interest, and passed unread by the “elected” representatives. (Is it really representation if they don’t read the legislation?) I seem to recall that this is also the legislative body that can’t pass a budget until 3-4 months into the new budget year, and hasn’t been able to agree on much of anything else either lately. Finally, is there any hope that next year, the next Congress will be any better?

Also, the projects you propose are best implemented at a state or local level. Or, in the case of the electrical grid, by the publicly-regulated utilities, who are perfectly capable of borrowing and investing in that infrastructure already, without Uncle Sam muddling everything up. If these were such smart investments, why aren’t those profit-seeking firms already going after them?

Finally – about those low rates – aren’t they set, or at least manipulated, by the government, indirectly via the Federal Reserve? Isn’t the idea to keep the rates low, so that the already unmanageable debt burden doesn’t become a national bankruptcy-via-inflation? Do we really want to pile on more debt and find out what happens? Won’t that increasing supply of Treasuries be in conflict with the national “hold the rates down” policy?

Or… is this just providing an excuse to encourage Congress to borrow more, thus requiring the Fed to monetize more so rates don’t blow out too soon (sorry, allow me to rephrase that as “continue QE at a higher level for longer to support the economy”)? They already monetize most of the current deficit.
Keeping that monetary spigot open seems to be the only thing propping up the stock market you love so dearly!

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About Barry Ritholtz

Ritholtz has been observing capital markets with a critical eye for 20 years. With a background in math & sciences and a law school degree, he is not your typical Wall St. persona. He left Law for Finance, working as a trader, researcher and strategist before graduating to asset managementRead More...

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